What do the sustainability guidelines CSDDD and CSRD mean for your business?
Sustainability is in the spotlight. Starting in 2024, several new regulations will come into effect that companies must comply with. A challenge or an opportunity? All these guidelines and regulations can have a significant impact. We are happy to provide clarity on the CSDDD and CSRD sustainability guidelines.
CSDDD (Corporate Sustainability Due Diligence Directive)
The CSDDD establishes legal liability for companies concerning environmental and human rights violations and requires them to develop a transition plan in line with the Paris Climate Agreement. As the name suggests, CSDDD – also known as CS3D – is a directive that mandates large companies to report on sustainability and social issues in their annual report. The new due diligence requirements apply not only to a company’s direct actions but also to their subsidiaries and supply chain. Companies based in the EU, as well as non-EU companies conducting a certain level of business in the EU, can be held liable for the actions of their suppliers.
CSDDD Six-Step Plan
Due diligence refers to a duty of care, where a key aspect is that this obligation extends not only to the company’s own location but also throughout the entire supply chain. This includes upstream (toward suppliers) and downstream (toward customers and consumers). For companies, this means they must gain insight into their production chain by analyzing and assessing risks. To comply with this due diligence obligation, the following six steps must be followed:
- Integrating corporate social responsibility into policies and management systems;
- Identifying and assessing negative impacts resulting from activities, supply chains, and business relationships;
- Stopping, preventing, or mitigating negative impacts;
- Monitoring practical applications and results;
- Communicating the approach to addressing impacts;
- Ensuring or cooperating with remediation measures where applicable.
Who does CSDDD apply to?
The directive applies to the following companies, divided into three groups:
- European companies with more than 500 employees and a global net turnover of more than EUR 150 million.
- European companies with more than 250 employees and a global net turnover of more than EUR 40 million, active in certain high-risk sectors such as textiles, agriculture, and mineral extraction.
- Non-EU companies with more than EUR 150 million in net turnover in the EU or more than EUR 40 million in net turnover and active in certain high-risk sectors.
(Source: Corporate Sustainability Due Diligence – European Commission (europa.eu))
CSRD (Corporate Sustainability Reporting Directive)
This European directive on sustainability reporting has been in force for some time. Starting in 2024, companies in the EU must prepare reports on their sustainability efforts using various sustainability criteria in three areas: Environment, Social, and Governance – or ESG. The European Financial Reporting Advisory Group (EFRAG), through an extensive due diligence process, has established twelve standards in consultation with a large number of stakeholders. Environmental standards, for example, address CO2 emissions and water use. Social standards cover issues such as employees and affected communities. In addition, governance standards include anti-corruption policies and animal welfare. These elements are further detailed in the ESRS (European Sustainability Reporting Standards) so companies know exactly what they need to report on for ESG to ensure uniformity.
CSRD Sustainability Reporting and IMVO
The CSRD requires companies to report on sustainability within their own organization and throughout the supply chain. Many companies operate internationally, which often has a major impact on human rights, working conditions, and the environment. This is one of the main reasons why reporting on IMVO (International Responsible Business Conduct) is a crucial part of this legislation. A company builds its future by making its vision and ambitions on sustainability for the short, medium, and long term transparent and by realizing them.
Who does CSRD apply to?
The directive applies to large B.V.s and N.V.s, as well as public interest entities and listed companies. Want to know if your company falls under the CSRD? A useful decision tree has been created for this. Even companies outside the scope of the CSRD may still experience its effects. For example, companies producing for a reporting entity may be asked to share information that their customer is required to report.
CSDDD vs. CSRD
What is the similarity and the big difference between these two directives? Both focus on sustainability and are socially and supply chain-oriented. However, they do not conflict with each other. The focus of the CSRD is primarily on reporting sustainability efforts. Companies are also required under the CSRD to report on policies, objectives, and measures (including KPIs). On the other hand, the CSDDD defines the obligations concerning business-related risks and impacts on people and the environment.
It remains a legal requirement that your company must comply with. These two new directives may be seen as an additional obligation, even if your company is not directly affected. This is true, but the silver lining is that due diligence – risk management – has many similarities with quality, food, and feed safety, and the implementation of sustainability risks aligns well with this. The approach and application of sustainability guidelines are therefore within reach. In this area, Schouten Advies has the expertise to provide the necessary support to comply with the guidelines for a future focused on sustainability.
Questions or need advice?
Do you have further questions about the CSDDD and CSRD legislation? Feel free to contact us at: info@schoutenadvies.nl
